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Definition
| aka periodicity assumption: accountants divide the economic life of a business into artifical time periods |
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Definition
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Term
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Definition
| an accounting time period that is one year in length. Usually begins with the first day of the month and ends 12 months later. |
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Definition
| an accounting period that extends from Jan 1 to Dec 31 |
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Term
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Definition
| transactions recorded in the periods in which the event occurs. |
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Term
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Definition
| transactions recorded when cash received or paid out |
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Term
| revenue recoginition principle |
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Definition
| requires that companies recognize revenue in the accounting period in which it is earned. |
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Term
| expense recognition principle |
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Definition
| aka matching revenue: expenses follow revenues: expenses should be recorded in the same period in which the corresponding revenue is recorded. Ask "in which period did this expense make its contribution to revenue?" |
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Term
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Definition
| ensure that the revenue recognition and expense recognition principles are followed. Needed because trial balances may not contain up to date and complete data because: some events are not recorded daily (use of supplies and earned wages), some costs not recorded daily (use of buildings, equipment, rent and insurance) 3. some items not available in period used: such as utilities billed month after used. |
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Term
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Definition
| a type of adjusting entry. Subcategories: Prepaid Expenses and Unearned Revenues |
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Term
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Definition
| a type of adjusting entry. Subcategories: Accrued Revenues, Accrued Expenses. |
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Term
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Definition
| expenses paid in cash and recorded as assets before they are used or consumed |
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Definition
| cash received and recorded as liability before revenue is earned |
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Definition
| revenues earned but not yet received in cash or recorded |
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Definition
| expenses incurred but not yet paid in cash or recorded |
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Term
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Definition
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Term
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Definition
| an assets period of service (building could be 50 years) |
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Term
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Definition
| the process of allocating the cost of an asset to expense over its useful life |
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Term
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Definition
offsets an asset account on the balance sheet. Ex: accumulated depreciation equipment
All contra accounts have normal balances opposite to the account to which they relate. |
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Term
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Definition
| aka carrying value: the difference between the cost of any depreciable asset and its related accumulated depreciation |
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Term
| Why would you adjust an unearned revenue accont? |
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Definition
| Revenues have been earned (services or goods have been provided) |
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Term
| Why would you adjust an prepaid account? |
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Definition
| Goods or services have been used or received. |
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Term
| describe adjusting entry to accrued revenue account |
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Definition
| increase (debit) asset account and increase (credit) revenue account |
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Term
| What extra step should you take after entering/journalizing an accrued revenue adjustment? |
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Definition
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Term
| Before adjustments of accrued revenues accounts over/under issue is: |
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Definition
| Assets understated. Revenues understated |
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Term
| Describe adjustment entry for accrued expenses |
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Definition
| increase (debit) expense account, increase (credit) liability account |
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Term
| Before adjustments of accrued expenses what over/under issues are: |
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Definition
| liabilities and expenses are understated and net income/owner's equity are overstated. |
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Term
| Over/under issues for prepaid Expenses |
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Definition
| assets overstated, expenses understated |
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Term
| over/under issues for unearned revenues |
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Definition
| liabilities overstated, revenues understated |
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Term
| over/under issues for accrued revenues |
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Definition
| assets understated, revenues understated |
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Term
| over/under issues for accrued expenses |
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Definition
| expenses understated, liabilities understated |
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Term
| Adjusting entries should not include entries involving cash T or F |
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Definition
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Term
| Each adjusting entry involves one balance sheet account and one income account: T or F |
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Definition
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Term
| Define Adjusted Trial Balance |
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Definition
| trail balance prepared after all adjusting entries are journalized and posted |
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Term
| What is the purpose of the adjusted trial balance? |
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Definition
| to prove the equality of the total debits and credits in the ledger after adjustments |
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Term
| What document is used as the primary basis for prep of financial statments? |
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Definition
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Term
| Order of items on adjusted trial balance |
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Definition
| Assets, then Liabilities, then Owner's Equity, then Expenses |
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Term
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Definition
| Revenues - Expenses = Net Income |
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Term
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Definition
| Owner's Capital starting balance + Investments + Net Income - Drawings = Owner's Capital ending balance |
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Term
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Definition
| Assets = Liabilities + Owner's Equity |
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Term
| List the major types of adjusting entries |
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Definition
| deferrals (prepaid expenses and unearned revenues) and accruals (accrued revenues and accrued expenses) |
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Term
| Explain the reason for adjusting entries |
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Definition
| companies make adjusting entries to record transactions (expenses and revenues) in the period in which they are incurred |
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Term
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Definition
| Accounting basis in which companies record transactions that change a company's financial statements in the periods in which the events occur |
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Term
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Definition
| the difference between the cost of a depreciable asset and its related accumulated depreciation |
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Term
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Definition
| Accounting basis in which companies record revenues when they receive cash and an epense when they pay cash |
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Term
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Definition
| An account offset against an asset account on the balance sheet |
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Term
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Definition
| an accounting period that is one year in length |
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Term
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Definition
| monthly or quarterly accounting time periods |
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Term
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Definition
| an assumption that accountants can divide the economic life of a business into artificial time periods |
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Term
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Definition
| a balance sheet that contains standard classifications or sections |
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Term
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Definition
| entries made at the end of an accounting period to transfer the balances of temporary accounts to permanent owner's equity accounts (Owner's Capital) |
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Term
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Definition
| entries to correct errors made in recording transactions |
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Term
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Definition
| assets that will be used within a year |
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Term
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Definition
| obligations to pay/provide service within a year |
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Term
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Definition
| a temp account used to close revenues and expense accounts |
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Term
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Definition
| noncurrent assets that do not have physical substance (copyright, patent) |
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Term
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Definition
| company's ability to pay off obligations/liabilities that are due within the year |
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Term
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Definition
| 1. stocks and bonds 2. land and buildings that are used in operations |
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Term
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Definition
| obligations that will be paid in more than 1 year |
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Term
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Definition
| time it takes to go from cash to cash (buy supplies (cash out), make product, sell product (cash in)) |
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Term
| permanent (real) accounts |
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Definition
| accounts with balances that carry forwrd after the close of accounting period. All balance sheet accounts. Not temp accounts |
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Term
| post-closing trial balance |
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Definition
| the list of permanent accounts that carry on into the next accounting cycle and their balances (created after journalizing and posting closing entries) |
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Term
| Property, plant, and equipment |
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Definition
| assets with long useful lives that are currently being used in operations |
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Term
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Definition
| entry made at beginning of next accounting period that is the exact opposite of the adjusting entry made in the previous period |
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Term
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Definition
| ownership claim of shareholders on total assets. to a corporation what owner's equity is to a proprietorship |
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Term
| Temporary (nominal) accounts |
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Definition
| Accounts that are related to a given accounting period. All income statement and owner's drawing accounts. All Temp accounts are closed at the end of the accounting period |
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Term
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Definition
| a multiple-column form that may be used in making adjusting entries and in preparing financial statments |
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Term
| List 5 steps to prepare a worksheet |
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Definition
| 1. prepare trial balance 2. enter adjustments in next set of columns 3. enter adjusted balances in next set of columns (adjusted trial balance) 4. transfer new balances to appropriate financial statement columns 5. total statement columns and compuet net income |
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Term
| Explain process of closing books |
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Definition
| Do at end of accounting period. Journalize and post closing entries, then rule and balance all accounts. Revenues and Expenses close to Income Summary Account. Income Summary and Owner's Drawing Accounts to Owner's Capital. |
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Term
| State 8 steps in accounting cycle |
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Definition
1. Analyze
2. Enter/Post (transactions)
3. Trial Balance
4. Enter/Post (adjustments)
5. Adjusted Trial Balance
6. Financial Statements
7. Enter/Post (closing)
8. Closing Trial Balance |
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Term
| Explain process of closing books |
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Definition
| Do at end of accounting period. Journalize and post closing entries, then rule and balance all accounts. Revenues and Expenses close to Income Summary Account. Income Summary and Owner's Drawing Accounts to Owner's Capital. |
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Term
| Explain preparing correcting entries |
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Definition
| compae the incorrect entry with the correct entry, then make correcting entry to reflect the difference. or reverse incorrect entry and then prepare correct entry for accurate total |
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Term
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Definition
| an account that is not reset during closing...the balance carries over to another period. (owner's capital) |
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Term
| Does the income summary appear on financial statements |
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Definition
| no - this is a temporary account used only during closing |
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Term
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Definition
| the average time that it takes to go from cash to cash in producing revenues |
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Term
| What is the time cut-off that defines the difference between current and long term |
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Definition
| current = less than 1 year long term = greater than 1 year |
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Term
| List the 4 Assset categories on the classified balance sheet |
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Definition
| 1. Current assets, 2. Long-term investments, 3. Property, plant, and equipment 4. Intangible assets |
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Term
| List the 2 Liabilities on the Classified balance sheet |
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Definition
| Current liabilities, Long-term liabilities |
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Term
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Definition
| Company Name, Balance Sheet, single date |
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Term
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Definition
| Begining Owner's Capital + Net Income (or loss) - Drawings |
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Term
| What type of asset account is Accumulated Depreciation? |
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Definition
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Term
| Define the difference between the Accumulated Depreciation account and the Depreciation Expense account |
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Definition
| Accumulated Depreciation is a permenant account that exists for the useful life of the asset, Depreciation Expense is a temporary account that exists for one accounting period (closes and closing and is reset to zero) |
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Term
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Definition
| to prepare for the next cycle, to reset temp accounts |
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Term
| Why do we use the temporary Income Summary Account when preparing closing entries? |
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Definition
| to keep the Owner's Capital account simple and to have one location in which all revenue and expense closings are recorded. |
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Term
| Why are closing entries prepared after financial statements are created? |
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Definition
| Because all revenues and expense accounts are reset to zero after closing, therefore the Income Statement would be blank if done after closing |
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Term
| Remember revenues and expenses can be industry-specific. double check all accounts to make sure you have picked up all of them |
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Definition
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Term
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Definition
| incurred or provided not yet paid/billed: accrued expense - incurred. accrued revenue - provided not billed |
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